The Canadian stock market continues to be seen as an unappreciated underdog due to its lack of sector diversification and heavy reliance on the resource sector. For many global investors, last year’s 25% return came as a surprise. However, it wasn’t a surprise to Matco clients as we discussed at our 2021 Outlook how we believed that Canadian stocks would do well.
Despite the strong performance, we still like Canadian stocks for 2022. Why?
- Lower valuation than the U.S. stock market
- Canada is still under-weight in the average investors’ portfolios
- Resources are a smaller portion of the market than during past early economic cycles
- A new commodity supercycle isn’t needed for the Canadian market to do well
- Corporate earnings are expected to grow in 2022, albeit at a slower pace than in 2021
I am bullish on our Matco Canadian Equity Income Fund and Matco Small Cap Fund for 2022. Why?
- Are trading at a significant discount to the overall Canadian stock market.
- Have dividend yields of over 3%.
- Have 90% plus of holdings that pay sustainable dividends.
- Have significant exposure to the financial sector, which will benefit from rising interest rates and act as a hedge against inflation.
- Have significant exposure to the Industrial sector, which benefit from the global supply crunch, has pricing power and benefits from North American economic growth.
- Have significant exposure to Communication Services such as telecom and entertainment, which provides the critical backbone for digital and lifestyle services.
- Small-cap stocks globally have underperformed their large-cap peers in 2021. Thus, we could see investors rotate into small cap companies given the wide valuation gap between the asset classes.
The Bottom Line
Don’t sell Canada short. We have great companies in Canada with strong balance sheets, steady dividends, and pricing power that benefit from North American and global growth.
Whether you’re looking for growth or income, the Matco Canadian funds provide a combination of both for clients to help you achieve your financial goals.
To find out more about the Matco Canadian funds, please reach out to me by booking an appointment on our website, calling, or emailing.
Anil Tahiliani, MBA, CFA
Senior Portfolio Manager, Canadian Equities